Sharing Is Hard: Legal Trouble for Airbnb, RelayRides, FlightCar

As more consumers turn to services like peer-to-peer rental-car outfits rather than Hertz, local authorities are penalizing participants with fines and ordering the companies to cease operations. Is it still safe to share?

Who knew that sharing could be so complicated, and perhaps even illegal? As companies operating in the “sharing economy” grow more popular, and consumers increasingly turn to services like peer-to-peer rental-car outfits rather than Hertz, local authorities are subjecting these alternative services to more legal scrutiny — in some cases penalizing participants with fines and ordering the companies to cease operations. Is it still safe to share?

Airbnb, RelayRides, FlightCar and other sharing-economy businesses have come under fire lately around the U.S. In all cases, the consumers who are using these Web-based sharing services are obviously not serving their usual role as paying customers to traditional companies operating taxis, hotels and rental cars. These mainstream companies don’t like their businesses being messed with, and they also feel that the upstart share-based disruptors have some unfair advantages in the marketplace. Specifically, the share operations are being accused of not paying fees and failure to comply with permit requirements, insurance rules and other regulations governing traditional companies.

To which the sharers have universally responded: Um, hey guys, we’re not traditional companies!

When the ride-sharing service SideCar was sent a cease-and-desist letter by the city of Austin and was accused of being an illegal taxi service, CEO Sunil Paul responded with a blog post clarifying, “SideCar is not a taxi company. SideCar is a smartphone app that instantly matches people for peer-to-peer ridesharing.”

FlightCar, a peer-to-peer car-sharing service that matches renters with vehicles left behind at the airport by travelers, is being sued by San Francisco City Attorney Dennis Herrera, who accuses the company of failure to pay San Francisco International Airport (SFO) the standard fees paid by rental-car agencies — 10% of gross profits, plus $25 per rental. FlightCar is refusing to pay up, saying that (yep) it is not a rental-car agency. The company also argues that because its primary business is off-airport (the cars loaned out are parked a few miles away), it doesn’t owe the usual airport fees.

[UPDATE: FlightCar released a statement clarifying that it changed its original business model to be in compliance with regulations in San Francisco, that it is in the process of negotiating “appropriate fee structures, while we operate within the current regulations,” and that it already does pay some fees to SFO. “FlightCar does not use or tax the airport’s infrastructure the way airport car-rental services do,” the statement reads. “It already pays a portion of its profits to the tune of about $15 per car-share arrangement, including $7.30 per car owner traveling to the airport.”]

FlightCar does acknowledge, however, that its service is in competition with the rental-car lots at SFO. “I think they have a lot of pressure from rental-car and airport-parking companies,” Kevin Petrovic, the 19-year-old co-founder of FlightCar, told the San Jose Mercury News. “We do take away some of their business.”

RelayRides, a peer-to-peer rental-car service, just announced it now allows members to list loaner vehicles at airports all over the U.S. Because a RelayRides car easily runs 20% or 30% less than a rental car, presumably the agencies trying to rent cars at these airports — and paying fees to do so — will have something to say about the peer-to-peer push in their backyard.

RelayRides already has its own legal problems. In mid-May, company CEO Andre Haddad announced that RelayRides was suspending operations in New York State after being accused of “noncompliance with certain unique aspects of NY insurance law.” At about the same time, SideCar stopped offering its ride-sharing service in New York City after a judge concluded it was essentially a taxi service that didn’t have the proper license.

Then there’s Airbnb. The service matches travelers up with a place to stay rented out by other members — possibly an apartment, home or just an extra room. Neither Airbnb nor its members consider themselves in the hotel business by any means. Nonetheless, a New York City judge recently ruled that one Airbnb host was running an “illegal hotel” and fined him $2,400.

SideCar jumped to the defense of Airbnb, as well as itself and RelayRides in the battle against the authorities in New York. “It has become clear that New York City regulators are protecting their own interests rather than those of the public,” a SideCar post stated. “Three Sharing Economy companies cited in ONE month — not because of public complaints, but because they have the potential to disrupt the hotel, taxi and insurance industries.”

Where does all this leave sharing-economy companies, as well as countless consumers who want to keep using them? Mostly in the dark. Municipalities around the country have different sets of rules and widely varying degrees of enthusiasm about enforcing them. A practice that is accepted or ignored in one city may land you in deep trouble in another. A practice that seems perfectly O.K. in a city one day may be subject to crackdowns the next.

Sharing-economy executives have reacted to the recent crackdowns in grandiloquent terms, portraying their accusers as backward, old-fashioned and anti-innovation. “Innovation is under attack,” SideCar’s Paul wrote. “Innovators have always faced opposition from traditionalists who are threatened by new ways of thinking. Battles may ensue but in the end innovation will win.”

“Innovation, by its nature, does not always fit within existing structures,” wrote RelayRides’ Haddad. “We remain committed to the democratization of car sharing.”

While these words may be inspiring, they’re also short on specifics concerning local laws around the U.S. Airbnb has stepped up to help fight the $2,400 fine given to the host in New York City, but the company also recently reiterated that, in so many words, when it comes to participating in its room-sharing services, you’re basically on your own:

While we did intervene in this case on an important point of law that seems clear to us, we cannot provide individual legal advice, and every case has its own specific facts. The laws governing different buildings in New York and individual rules put in place by co-op boards or leases vary. That is why we ask hosts in our 35,000 cities around the world to check the law in their own city and their leases as well.

“The sharing economy is here to stay, and so are we,” the note from Airbnb concludes.

FlightCar's troubles are not limited to SFO. It operates out of Burlingame but has not bothered to get a buisness license or any permits. The city is in the process of cracking down on them too. Essentially this is an illegal business. This is basic stuff that any business should take care of - not too much to ask.

Failing to obtain a business permit is not all that unusual for small startup companies. Most cities and counties, allow companies to apply for the permits and pay fees and, possibly, reasonable penalties after the fact instead of trying to shut them down. This is because the point of most local business licenses is purely to raise money for the general fund and not to regulate business.